Tax Break Extension Will Save Small US Firms Billions In Taxes

by Mike Godfrey, Tax-News.com, Washington

23 July 2004

America’s small firms will be able to save some $10.9 billion in taxes from 2006 through 2008 under new legislation passed unanimously by the House of Representatives on Wednesday which extends generous expensing limits.

Under the proposals, small businesses will be able to continue writing off as a business expense up to $100,000 of a capital purchase, a measure that would fall to $25,000 in 2006 if Congress fails to act.

The Bush administration welcomed the bill for "allowing these businesses to write off immediately the cost of this equipment for tax purposes rather than facing the difficulties of complying with the regular depreciation system."

House Republicans were also keen to emphasise the bill's simplifying effect on the tax code.

The House bill also seeks to qualify more firms for the more straightforward cash method of accounting rather than the complex accrual method.

Current law stipulates that companies with more than $5 million in gross receipts must switch from the cash method to the accrual method.

The House proposal indexes this threshold for inflation, saving small firms an estimated $118 million per year.

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